Recommendation 12

HM Government Accepted

Minister maintain closer scrutiny on the whole budget and the proportion of the ODA budget allocated to BII. At a time of limited availability of the development budget, the taxpayer needs assurance that Official Development Assistance is used to support the world’s poorest people in the most effective way. Partially Accept The Government agrees that Ministers should maintain scrutiny over the ODA budget, including allocations to BII. Ministers closely review the allocation of the ODA budget to ensure spending is aligned with Departmental priorities and approve all FCDO capital contributions to BII. Capital contributions to BII between 2015–2021 equalled approximately 4% of the UK’s ODA budget and enabled a planned build-up of BII’s activities over that time. The FCDO closely scrutinises BII’s activities to ensure effectiveness. As mentioned in the response to Recommendation 1, strong governance arrangements provide accountability and detailed oversight. FCDO’s active role in setting BII’s five-year strategy ensures BII operates in lockstep with the UK’s International Development Strategy. BII annually monitors the development impact for both direct and intermediated active investments made since BII’s investment mandate was expanded in 2012. Investments made in the current strategy period are assessed under the new Impact Framework. The Impact Score assigned to each new investment, which forms part of the Framework, is also reassessed at 2-year intervals after BII’s initial investment, in addition to annual impact monitoring. Investments made in previous strategy periods 2012–16 and 2017–21 are all subject to annual monitoring and assessed against the development impact metrics agreed at the time of the investment. Ministers recognise the importance of the FCDO-BII Evaluation programme (see response to Recommendation 3) considering gender, development impact and environmental and social outcomes, having integrated these into previous evaluations. The FCDO will ensure these will also be a specified feature of future portfolio and individual investment evaluations. Ministers consider BII’s monitoring to be appropriate. However, as part of FCDO’s commitment to ensure best practice oversight arrangements are maintained, the FCDO Session 2023–24 will review in 2024 whether additional spot checks of BII investments by external experts to verify BII’s internal ESG and development impact assessment are required. Ministers disagree with the recommendation for BII to perform annual impact assessments of businesses invested in through financial intermediaries as this would require substantial additional resource and be disproportionate to ensuring a reasonable assessment of impact. BII already monitors these investments at the intermediary level as per the above processes. As referenced in the response to Recommendations 3 and 11, FCDO and BII’s Evaluation and Learning Programme, which uses independent evaluators to measure BII’s development impact, has also published two independent evaluations of BII’s Financial Institutions and Infrastructure portfolios. These found that 84% and 80% respectively of BII’s investments in these sectors were on track to meet or had outperformed their development impact theses as defined at the point of investment. A review of the Industries, Technology and Services portfolio is due for completion in early 2024. As referenced in response to Recommendation 9, where BII has discretion over the timing of divestment it seeks a responsible exit once its presence as an investor is no longer contributing to impact, or where risks have materialised which may prevent impact being realised. BII undertakes a formal process for exiting investments which includes detailing the rationale for exit, its efforts to ensure the ongoing impact of the asset (i.e. selling to the right investor), and delivering value for money for the UK taxpayer (i.e. seeking to earn a fair return on its investments).